This post is the second of a series in which I cover some common myths and misconceptions about estate planning. Of course, the more clear people are about the basics, the better they’ll understand how best to proceed with establishing an estate plan or reviewing and updating their existing plan.
A considerable number of myths exist about Estate Planning and, in particular, Revocable Living Trusts. Although increased media coverage and a higher level of consumer sophistication have helped debunk many of these misconceptions, I still encounter quite a few. In this post and each of the subsequent posts, I will highlight one or several of the myths and misconceptions that I regularly encounter and provide an educated rebuttal to them.
Myth: If I sign a Power of Attorney, I don’t need a Will or Trust.
Reality: Every adult should have a Power of Attorney. It vests legal authority in someone you trust to transact financial business for you in the event of incapacity. If you become incapacitated and don’t have a valid Power of Attorney, a very expensive and cumbersome conservatorship court procedure may become necessary to enable someone to manage your finances. However, as helpful as a Power of Attorney can be during your life, it has no effect whatsoever once you’re gone; it dies when you do. Your Trust and/or Will then become the necessary governing document(s).
Myth: If you establish a Revocable Living Trust, your trust assets will be protected from your creditors.
Reality: As fantastic as Revocable Living Trusts are, they are not useful to protect your assets from your creditors. If a Trust conveyed that benefit, everyone would establish a Trust and no creditors would be able to be paid; thus, no credit would be available! However, in contrast, if a Trust is drafted with appropriate provisions, very robust creditor protection is available to those assets kept in your trust for your loved ones after you die.
This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.